Earnings Call: H2 2020

May 15, 2020

Ladies and gentlemen, thank you for standing by and welcome to Singapore Airlines Analyst And Media Briefing for the full year ended 31st March 2020. At this time, all participants are in a listen only mode. After the Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your first speaker today, Siva Govindasam. Thank you. Please go ahead. Thank you, Rishi. Good morning, everyone. Welcome to the Singapore Airlines full year median analyst briefing. I'm Siva from the SIA Public Affairs Department. I hope everyone is safe and healthy. This morning, we have organized a virtual briefing due to the COVID-nineteen outbreak, and let's hope that this part quickly and we can see each other in person for the next session. We will have 2 presentations today. 1st, as VP Finance, Mr. Steven Barnes will present the FAA results for the fiscal year to 31st March 2020. Next, SIA CEO, Mr. Ghoshan Pong, will take us through the strategy and outlook for the year. This will be followed by a question and answer session. So without further ado, I would like to invite Mr. Barnes to make his presentation. Mr. Barnes, please. Thank you, Sula. Good morning, CEO, EVPs, ladies and gentlemen. Thank you very much for joining us. I'll dive straight into the group's financial results perhaps to the key takeaways slide. The first line of this slide really summarizes what has dominated SIA Group's financial results in financial year 1920. Notwithstanding the good progress and results we had recorded in the 9 months, December 2019. The collapse in demand for air travel due to the COVID-nineteen pandemic starting in late January. Coupled with the unforeseeable collapse in oil prices amid a supply drought, other two teams to which we will be returning to this morning. So turning to the P and L on the next slide, These two themes drove the more than $1,000,000,000 reduction in the group's operating results in Q4 which ended with an operating loss of $802,000,000 and a net loss of 732,000,000 For the full year, the group recorded a small operating profit of $59,000,000 thanks to the strong performance in the 1st 9 months of the year. However, at the bottom line, we recorded SIA groups first annual net loss in its history of $212,000,000. For those with sharp eyes and a good memory, there is an additional line item in this representation to put P and L fuel hedging ineffectiveness. I'll come back to this, but note for now that the size of this charge is $710,000,000 Group revenues. In the 1st 9 months, Group's revenue grew by over $500,000,000. But in the 4th quarter, it collapsed by nearly $900,000,000 or The pie chart on the next slide describes some of the components So the revenue decline of $347,000,000 for the year was attributable to 1st lower passenger flown revenue. Demand for air travel collapsed with the closure of international borders and overturned the overall revenue improvement of $239,000,000 achieved by the group in the 1st 9 months. 2nd, lower cargo flown revenue. This was driven by poor loads carried and yields, primarily in the 1st 9 months of the year. Cargo had faced multiple challenges for most of the year the U. S.-China trade conflict, export manufacturing slowdown in Europe and Asia. And industry over capacity on several key trade lanes. A downward pressure on yields in the 1st 9 months was reversed in the fourth quarter when yield was given a boost by an industry wide belly hold capacity crunch and the spike in demand for transportation of essential medical supplies and other products. So in the fourth quarter, the revenue decline was just $19,000,000 when compared to the steep decline in the 1st 9 months. 3rd, lower engineering services revenue. This was mainly attributable to lower airframe and line maintenance revenue resulting from flight cancellations of missed COVID-nineteen outbreak but also the divestment of aircraft maintenance services Australia last year. Higher other revenue was mainly due to 1st, an increase in merchandise sales through Chris Schott. And secondly, compensation received by the parent airline from various suppliers. Turning to group expenditure. Group expenditure was up by $661,000,000 for the full year. But even in the 4th quarter, expenditure rose by $162,000,000. The major reasons for the increase will be discussed in the following slide. Total fuel cost post hedging increased by $49,000,000. I will show you the main drivers of this in the next slide. Staff costs fell by over $250,000,000. This was partly to do with the lower provision for profit sharing, as you might expect. In addition, we received grants under the Singapore 2020 budget. And these items were partially offset by increases in paying allowances due to a higher average staff strength. Depreciation and leased aircraft charges were up by $220,000,000. This is really due to the groups enlarged aircraft fleet, a net increase of 7 aircraft. After accounting for the return of 16 aircraft to lessors. Other expenditure items do not need much comment says perhaps for fuel hedging ineffectiveness. Yes, it's almost time to talk about this. After all, Without this charge of $710,000,000, group expenditure would have reduced by $9,000,000. Let's go to the fuel cost. I promised to show you the composition of the fuel cost increase in the year. First of all, we benefited from lower average fuel prices before hedging. And as expected, this was offset by a worse out come on fuel hedges as we swung from a gain to a loss. We did not consume as much fuel. And we had a small increase in costs from a stronger U. S. Dollar. Turning to slide 11. This chart shows that Q4 was a real challenge and operating profit plunged by $1,000,000,000 to an operating loss of $802,000,000. On the next slide I'll show you its main components. Can see the, and we've talked about the reduction in passenger and cargo flown revenue we've talked about the main cost items. But let me talk about fuel hedging ineffectiveness. What is behind the charge for this item? Fuel prices plunged towards the end of the 4th quarter demand of oil slumped due to the COVID-nineteen pandemic amid an unexpected supply glut. This led to fuel hedging losses on contracts maturing during the quarter. And these losses have been realized and they are captured in the net fuel cost. The ineffectiveness piece comes about from future capacity cuts. The expected capacity cuts in financial year 2021 will lead to lower fuel consumption than previously anticipated, causing the group to be in an over hedged position. This means that the hedges we had bought can no longer be tied to expected consumption. Therefore, the hedges are adrift and no longer benefit from hedge accounting treatment. As a result, the group had to revalue the surplus hedges. And because the oil price had plunged by the end of March, we recorded substantial mark to market or unrealized losses of $710,000,000 on these surplus hedges. Now under financial reporting standards, These losses must be recognized in Turning to the next slide, we'll look at the contribution of the individual entities. Focusing on the full year, Singapore Airlines revenue decreased by $132,000,000 as a result primarily of the lower cargo revenue was down by 1,000,000. So that lower cargo revenue was offset partially by a marginally higher passenger flow revenue plus other sources of increases in other sources of revenue. Expenditure was up by $565,000,000 for the same reasons that we have identified in the group results. Fuel and craft depreciation, fuel hedging ineffectiveness. It's okay. Its revenue fell by $125,000,000 mostly this was from lower passenger phone revenue but also from fewer charter flights. Expenditure on the other hand increased marginally just by $2,000,000 or $3,000,000. But it would have been lower in the absence of Silkeire share of fuel hedging ineffectiveness. Scooter's revenue dropped by just about $100,000,000 mainly from lower passenger phone revenue. But also from other sources of revenues such as lower very hold cargo revenue. Expenditure on the other hand rose by $83,000,000 Most of this increase was from fuel hitting ineffectiveness. SIA Engineering, I've mentioned previously, had lower revenue from lower airframe and line maintenance. But a greater reduction in expenditure from lower materials costs, production overheads and staff costs. Turning to slide 14. This is a composition of group net loss, lower operating profit and tax credit compared with the tax expense, higher net finance charges. Let me mention here that under the new leasing standard we adopted in the year. We now recognize interest expense arising from lease liabilities as an interest expense in finance charges. Provisions for losses in relation to NOx scoot arise really from the current challenging environment that it finds itself in. On associates and joint ventures. This is primarily attributable to a weaker performance from Vistara partially offset by Virgin Australia where losses were reduced and better results from FIA Engineering's associated companies. Next slide. EBITDA per share was down 7.5%. Earnings per share on the other hand swung from a profit to a loss per share. The reduction in the net asset value per share arises from the net loss during the year dividends paid during the year and the fair value movements recorded in reserves from jet fuel hedges. The coverage ratio is And really this reflects an increase in, sorry, the leverage chart reflects an increase in debt finance debt funding. We raised debt funding of $4,000,000,000 in relation to $5,100,000,000 of capital expenditure and $500,000,000 of working capital requirements. Plus, you may recall we added $2,500,000,000 of lease liabilities from adoption of the leasing standard. Finally, group capital expenditure, is slightly moving target at the moment. We are in negotiations with Airbus And Boeing. What is shown on the screen is our updated committed capital expenditure schedules. But please note that any agreements that we may reach for Airbus And Boeing in coming weeks months are not reflected here. I'd like to hand over to, our Chief Executive Officer, Coach and Paul. Thank you, Steven. Good morning, ladies and gentlemen, again, welcome to our 1st virtual briefing. Start by setting up on slide 20, the outline of my presentation this morning. As you can imagine, you will be centered around the COVID-nineteen prices that the airline industry is currently experiencing. Impact. As all of us are well aware, the SIA Group seems its incorporation has been having an unbroken record of profitability. And that's true crisis such as SARS 911, Global Financial Crisis, etcetera. We have always been profitable. We have always operated on a very efficient, effective manner. I've always been adapting, getting a hit of changes in the market. You may recall that when about a decade ago, when we were confronted with both the challenges of LCC in the region as well as the fast expanding Middle Eastern carriers, we came up with successful strategies to address them. Such as our portfolio strategy as well as our multi health strategy. So we don't stand still. We always take on a challenge and move ahead. We've always been adopting a prudent liquidity strategy as well. In fact, our liquidity is in excess of 3,000,000,000 at all times, and that's, of course, in the form of both cash reserve and lines of credit. And everyone would be aware of our transformation program as well, which started about 3 years ago. It has been immensely successful. In fact, in the third quarter of the last financial year, the quarter, October to December, We've achieved record revenue, record low vector, and indeed one of the best operating profits of any quarter in our history. And here are some of the achievements, the tangible, quantified achievements coming out of the transformation program. And you can see that it touches all aspects of our business, firstly of course, to our customers, how they have appreciated the efforts and the outcome of the translation can see the increase in the MTS call. The savings that we have achieved for our customers in terms of the efforts to reach out and work with us on the issue. You can also see the various transformation leading to better performance in operations, better on time performance, better productivity and also of course digital capabilities. Then we have the Colby Challenge. We're all well aware that it started in China, Wuhan, but it soon spread to the rest of the world or on my major markets were affected. Europe, US, New Zealand, Australia, the rest of Asia. And in quick succession, we see that travel restrictions, border controls were put up. And as a result of that, we will work international capital collapses. And as a result of that, we had to cut our capacity towards the end of March by 96%, which is very very drastic. But we're now alone facing this problem, if you can see the slide on slide 24 on the right side, you can see the other major carriers to suffer stability on international routes. Of course, If they have domestic market, they would have some cushion. In our case, we are a little more modular because we don't have a domestic market. It depends on which is typically the last to be closed and likely to be the first to be opened. So how have we responded? As I mentioned earlier, we have taken decisive steps to cut capacity. But I would like to perhaps also say that while we are doing that, we are conscious of the need and sensitivity around having to fulfill our customers requirements on bringing their loved ones safely. And in that regard, during that time, we have mounted extra charter flights to bring Singapore into home from Wuhan We have also kept our capacity to major educational countries where we have many of our students so that the students can actually be performed safely too. And that includes, for example, the UK and Australia. At this point in time, we maintain a minimum connectivity to key countries TCCs around the world. We operate about 30 eight flights weekly serving 15 cities and 14 countries. Cargo is actually a bright spot at this point in time. For 2 reasons. And if you heard Stephen earlier, those reasons were given as well, but let me just reiterate them. Certainly bunch of the cargo capacity of airlines in the world are actually being provided by its very home, which is, of course, tied to passenger operations. The other aspect is that during this crisis, there were actually Citizens demand increase for the movement of facility medical equipment efforts, fresh food. So that includes TTE. And you see that on many of the major lanes, the demand exceeds the supply. And as a result of that, we're seeing pretty good cargo demand. Of course, we will then maximize our utilization of operators. But beyond that, we have also been operating passenger aircraft or cargo owning missions. And in fact, we have also gotten agreement or rather approval to have cargo carried on in the cabinet itself. Both be struck to the seat as well as in all of the cabin. So that allow us to maximize our revenue opportunity when it comes to cargo and we continue to look for opportunities to do more. Customer is always at the center of our attention. So throughout this crisis where we operate it, we ensure that the customers are well-being safety when they travel with us is well taken care of. We have looked into areas of pain points to resolve, for example, whether customers were having difficulty reaching out to us through call centers or contact places. We beat up those places with extra manpower to address them for this reason. There were a lot of calls because of all the upheaval in the market. We continue to engage our customers through various means At this point in time, mostly through the electronic meetings, updating them on what's going on with respect to our network our operations as well as activities that take place within FY18. We recognize loyalty and we proactively offer extension of membership to our Free Fire Members and our priority passengers. I will start very important parts of the organization. In fact, I've always And for Sykes, the staff is a very strategic component of the organization. And they have been doing a lot of monitoring in this COVID period. Our national efforts to come back for this is Singapore, and we're very proud of that. I think that's well publicized. I would not need to elaborate more. But at the same time, we're also taking this opportunity to look at how to upscale our staff. Of course, many of these puzzles are now converted to electronic forms so that they can actually continue to educate and learn more. And that important because it will emerge even more skills and more capable handling other tasks. I'm on flight 30 now. Also to emphasize that the Singapore government has strong support for the aviation sector. This is in recognition that aviation hub is an important enabler for the rest of the economy especially the tourism aspects, the manufacturing logistics effect is slow. So the simple government had come up with strong support packages, You can see it on the slide there about just the post scheme as well as some of the cost relief on the airport operations. And both our PM and DTS have come up strongly too and the statements you can see on the slide too. Now a very important effect of this crisis is that we are now operating at a very minimal capacity 4% and therefore virtually no revenue. I mean, there's some revenue, but it's virtually not anything significant. But at the same time, we got to continue to to have expenditures to keep our operating capabilities, which means that we're always at this point in time, be having cash burn. So we have taken very practice steps to try to reduce our expenditures. We have announced all of them, I mean, cutting pay for senior management and management, having various schemes of no pay lease available to start. Talking to suppliers and aircraft manufacturers to defer delivery and also, reschedule payment. Deferring all non essential, non critical projects and having very high cost discipline orders have been done. And on top of that, we have tapped on our line of credit that we have put in place before. And we're also exploring other forms of funding, secure financing, just the leaseback, important to note that, that's because we have quite a bit of capacity there because we have a lot of unencumbered aircrafts. Obviously, in a situation whereby we are virtually no revenue, this is not going to be enough. And that's the reason why we went on with a strong support out of majority, shareholders, domestic to have direct issue exercise. I think this has been presented many times, I've been communicating a lot on this, so I would not also need to elaborate on this, suffice to say that This put us in a very strong position to prepare and capitalize on the recovery. Slide 33 is I'm going to talk about the preparation that has been underway for restart. And this is really talking about the next 6 to 12 months, what do we need to put in place and what do we need to ensure that we can restart smoothly. Broadly speaking, I would have to say firstly that nobody is sure at any point in time, about exactly how the recovery is paid off the recovery will be like. And also what exactly are the kind of regulatory requirements that countries in the world were put in place to address the need to contain the virus. So we have actually broken down into 4 work groups to address the restart. Firstly, a group to look into and to be updated on the health and government regulation. With regard to travel 1, the control as well as the border controls are listed. So these beams that we have to work with both the government, the government of Singapore and also be aware of what other governments are looking at. And some of these are coordinated through industry body touches, IATA, for which we participated actively as well. We also need to knowing that coming out of COVID, there will be a lot of concern over health and well-being when they travel with us. And we've got to make sure that we address those concerns that our customers will have. There's this effect of ensuring that our crew and other employees have the necessary license and certifications to actually restart the operation and also working with our partners such as ground handling agents, the airports and others to ensure that the whole operation is smooth for our customers. Then with all that, we also need to ensure that we have very clear communication, clear and regular communication with passengers within the organization to ensure everybody is on the same page. And then of course, that's a question of what is going to be required when we restart in terms of manpower and therefore the workplace arrangements. Because many of our staff are now working from home, but with the restart and we're going to increase our operation, we will need to have some of this staff back on the ground. Now that is the that was the what we have to do right now to ensure that we come back and offer a smooth travel experience for our customers and restore confidence in the travel. But then going ahead, we expect that the whole will be very different from what we have seen after this point in time. So some of the factors are shown on this slide, which is slide 36. We don't know exactly how the trajectory of the recovery will look like. Is it going to be just a new shaped recovery? Is it going to be a W Will there be reinfection? We don't know that. Because we don't have a domestic market, any operations we do would require the other governments other governments to live travel restrictions and border control. So we need to understand how that's going to be put in place. Again, there is no clear visibility on exactly how that's going to be done. You would have read that on the paper that Singapore government is exploring Greenlane with some of the other countries and we will have to keep a very close watch on the development of those discussions. Of course, beyond that, the economic activities, the return of the economic activities in the various regions and countries. Consumer behaviors are likely to change after COVID. More conscious about services that people touch more conscious about proximity. All these will form a new expectation on the travel experience. And we would have to take that into consideration on how best to address the consumers expectations, but importantly also to bring up the facts on what can be expected in terms of what we can provide as well as what it really says based on facts and not me. As we know and we are doing it now, we have a virtual briefing. Much of the business activities are now taken place virtually That's a question on how much of that will continue so perfect, covered. That is still also an unknown because some of the businesses are really looking forward to reestablishing physical meeting and contact, but there's also the question of how the company policy, travel policy might change. The aviation ecosystem as a whole would also be changing. I mean, you look at the changes that that Boeing and others are taking. You expect that the distribution channels and all that could be also different given that consumer might prefer more online, more virtual interaction. The way cargo hinder not cargo, but baggage is handled, the way ground handling is going to be done. The way checkings are going to be done could be also different. And all of these are going to change ultimately how airline operates. I think it's fair to say that most in the industry expect that there will be in the near term there will be some decline in the demand relative to before close it. There will be some multi contraction in the near term but there is no clear visibility on how long it takes to recover, but most industry expect it to be a few years. We believe that is a reasonable expectation And beyond that, however, there is a general belief that there will be growth at some point. But obviously, with all these changes, we would have to change the wave of upgrades too. And so looking beyond the immediate restart, We believe that there is an opportunity for us to look at all of the different sectors and ensure that when we emerge, we're in a position of strength and the first off the block in terms of being able to lead the industry again. So for that, we have also had a separate stream that look at these longer term changes and putting us in a position of strength as we merge. And that is really the next phase of transformation that we're embarking on. So in the immediate, couple of years, We are really looking at some of the pain points that we currently experience and pain points that we have identified during this COVID period. That we can address right away how to be more effective in engaging our customers, how to address some of the the requirement that customer has in terms of ensuring well-being when they travel with us. Those things we can go ahead and do. But in the medium to long term, we're still in consideration some of the value driver changes, some behavioral changes some of the business requirement changes and to have a comprehensive, if you look at how we are doing things now, to ensure that we are positioned looking at what new business opportunities we may get into, leveraging brands and other cost trends, so that we can actually invest stronger. Conclude by sort of a slide that summarizes what I said earlier. Firstly, We are in the Brazil strength now. We always have a strong and trusted brand at the given. Now with the with the right issue, the funding exercise that we have, we're now having a strong balance sheet. In fact, I would say that because we started on addressing the liquidity issue early on, we had an early success in securing those funding coming in at this moment. And this actually put us in probably one of the strongest balance sheets in the industry at the moment. It also we mentioned that we'll be looking at other avenues of raising funds to secure financing to build a leaseback definitely strong balance sheet would also put us in a strong position to actually conclude those deals, to negotiate, conclude those deals. We also have talented and committed staff event. Over the last three years of transformation, our staff important use to a lot more new ways of doing things, including being much more agile. And that commitment and those skills that will be very helpful when we reach our operations and also going back to the growth trajectory in the longer run. We have also established strong digital capabilities, which we believe will be a very important aspect of the next phase of our transformation and also for the industry and the way we interact with our customers going into the future. As you can see and I've stated earlier, all of these attributes put us in a very strong position to do both the visa and also to position ourselves for longer term success. That's my last line. Thank you very much. Thank you, Mr. Gu. We now have approximately 35 minutes or so for a Q and A. Mr. Go and Mr. Barnes will be joined by on the line by our 3 Executive Vice Presidents. They are EVP Operations, Mr. Max Swiwa, EVP Commercial and EVP Financing Strategy Mr. Than Kai Ping. Please note that this session is being recorded and the clip will be uploaded. Therefore, we would appreciate if you could please identify yourself and the organization that you represent when you ask questions. We also have a lot of media and analysts on this call, therefore in the interest of time, We would really Thank And the first question we have is from the line of Chen Chuan Ren from Air Transport World. Your line is now open. If I may, I have 2 short questions. First question is the merger between and SQ is initially set for 2021. We will foresee acceleration of this plan. And the second question is, how do you balance the supply demand between NIA is good. Which segment do you expect to recover first? Thank you. Tio and SIA. We oh, sorry. MI and SIA We have announced a previous time line. At this point in time, we are still evaluating what the implication is for us from the COVID impact, but I think we can say that we intend to look at maintaining the timeline at least to maintain a timeline as you can say, if there is opportunity or valid reason to to speed it up or benefits to speed it up, we will certainly look at it. On the recovery of whether or not the recovery was good or for SIA, the main line is going to be faster. The thing about this is, as I mentioned, our recovery depends on not merely on expectation of the traffic, but also on lifting of the border control, which is which is certainly not within our control. And that means that we the important thing is for us to be very nimble in responding to how the market will develop. At this point in time, it's too early to call. But one is important is that we do have both the LTC and the post office in our portfolio, which give us the advantage of being able to react quickly effectively as we see how the market unfolds and the border controls, did relax. Rishi, next question please. The next question we have is from the line of Achit from UOB. Your line is now open. Hi, I've got 2 quick questions. One is What do you expect in terms of capacity, evotic capacity for FY 21 if border control restrictions are lifted. That's my first question. 2nd follow-up question is what would you prioritize more? In terms of a saleback transactions or direct sale of aircraft? This is Lexin. I will take the question on capacity. As mentioned by Jun Bong, it is clearly evolving and things happening even in the moment and change the outlook for what the capacity will be for FY21. Safe to say is that We do know that this crisis will have a significant economic impact and that it would be realistic to expect that we will not go back to exactly the capacity that we will act. Prior to the crisis, within a short timeframe. So certainly for the next 6 to 12 months, we will not rebound to exactly the same level that we were at, and that is our current planning horizon. Aditha, this is Kiping. Thank you for the question. I will take the question on funding. So we have disclosed that in addition to the right issue, we are concurrently looking at both the secured debt market as well as sale leaseback opportunity. All of these are being a good techie parallel. Think one of the teams you have heard and I think you continue to hear is around how to maintain flexibility how to be rebuilt in how we approach the COVID situation. You will be aware that all the debt markets are open they are more limited for the aviation sector. And so we've with outright issued and strengthening our balance sheet that puts us in a much stronger position, but we are exploring all the different deposit our liquidity, different factors or liquidity, in parallel. Thank you. The next question is from the line of Jamie Lea Fried from Reuters. My question is just about please. Are you considering the retirement of some or all A380s and do you still want the 777X or will you consider potentially swapping that for another model? You are talking about the fleet. So obviously what we have done as you are aware especially in recent years is this very rapid replacement of our old aircraft and new aircraft. And we expect that to continue. Each aircraft in our fleet for 1st, A380 caught up to this point, has been serving the strong dense goods. We will continue, like I said, the pace of recovery, the ship recovery of this particular crisis is still uncertain. We have flexibility around our fleet. So we'll continue to look at what we need to do in terms of netting the fleet requirements and the market outlook. Thank you. Next question please. The next question is from the line of Xin Wu from OCBC. Please proceed. Hi. Thank you very much for the presentation. So I just have a couple of quick questions. So the first one is we saw your impact of the a few hedges on income statement as well as the balance sheet. Can you share some color on the impact on cash flow? And the second question is in the very near term stated 6 to 12 months you think that air travel would actually be more expensive for the consumers in line of social distancing measures? Okay. Thank you. I'll take Steven here. I'll take the 2 hedges. Question. The one of the fuel hedges have a maturity, which is sort of essentially laid out at the moment. So The fuel hedges matured in Q4 have and on which we suffered losses. The cash flow relating to those hedges has already been incurred. The $710,000,000 mark to market losses as you rightly picked up is an unrealized loss. Those contracts will mature during the course of and actually in 2021. It is so the cash flow impact will happen as the year progresses. Now It is feasible to work with counterparties or others in the market to roll over some of those contracts. And we have done so But we need to be wary of the commitments that we make, prices that we are entering, that we contract and so on. And so, we are step by step approaching the market when it seems to be opportunity to do so. But cash flow generally is going to be spread through the year as we as those cash as those unrealized losses come to fruition. Hi, this is Lixin. I'll take the second question as to whether FS will go up or go down, the price of the air ticket is really a function of demand and supply, and we will have to adapt to those curves accordingly as we get back out in the market when we restart our services. As to the question of social distancing, in particular, on the aircraft, it is still not determined at this time the efficacy of such measures. And there are many discussions ongoing between various authorities as well as among the airline and airlines with minorities on this subject, but it is too early to make any pronouncement on this. Next question is from the line of Tauteng Wei from The Street Times. Please go ahead. Air travel be like for the consumer. So you touched on the prices, but looking at it, are we looking at longer waiting times to check-in increased measures like such as maybe the cabin crew having to wear PPE and reduce services. They are permanent in terms of delivery. This is Yes, in fact, all those things you mentioned are precisely the kind of issues that we together, our airlines are working with authorities and also regulators on what we call the mode of operation Obviously, the concern now is on safety and health and there is a few teams out there, for example, wearing masks, social distancing, on the ground, contactless surveys. So all these issues are now being examined to see how practical they are, how they can be implemented, both on the ground as well as in the air. I think that now there are already some models out there, which requires passenger to wear a mask. And there are also some guidance on the kind of in flight service So this is one area where you will evolve. And, what's safe to say that it will not be the same as the pre COVID situation. Thank you. The next one is from the line of Raymond Yap from CIMB. Okay. The CapEx for FY 'twenty one has been reduced from CNY6 Billion in the last guidance to CNY5.3 billion Can I ask is there a potential to reduce it further or is it not possible because aircraft deliveries cannot be pushed back in the current year? And the second question is on the staff costs. We actually sell 500,000,000 things between the third quarter 4th quarter. Did the job support scheme come into play and contribute from a specific line or it's GSS only contributing from April onwards? Thanks. Okay. If I may, Stephen here, on the capital expenditure, the there has been some shifting of expenditure, primarily relating to significant maintenance expenditure. The material that we would the expenditure that we would normally capitalize because we're not flying the fleet at the same pace as previously. We no longer have to undertake some of that maintenance expenditures that gets deferred. As far as the outcome of the negotiations with their boss and dying is concerned. So still being negotiating, negotiated while we hope that there is scope to, improve cash flows in current year. Until we have an agreement, we choose not to actually count it as done. On the staff costs, the major impact, although the budgets support relates to the period of October to March, He was only announced and the cash received, rather recently. And so as a consequence, we actually booked significant portion of benefits in all of the benefits, I should say, in Q4 rather than in Q3 and Q4. Secondly, the adjustment to profit sharing bonus is a Q4 effect because we had been building up a provision the profit sharing bonus through December, and that required an adjustment out during Q4. Thank you, Subans. Next question please. Next question is from Brandon T. Sobe from Sobe Aviation. Yes. Hi. Good morning. I had a question about retrofits, that with, with the A380, you know, you could go either way. You can use this downtime to accelerate and complete the program or you can just delay it because maybe you think the aircraft will coming back into service soon. So can you tell me tell us if it's accelerated or slowed down or just no change? And the same thing with the seven thirty seven 800s that, I think that that life flat retrofit and and, was gonna start pretty soon. Is that accelerated or or slowed down or the same? And related, I I was wondering about cargo conversions. You might have noticed some airlines like Air Canada have converted some of their 777s untemporarily by taking out the seats. I'm just thinking maybe especially with your 390 hours, which are still in service, but maybe you won't go back into passenger service. That there could be an opportunity to maybe quickly turn those into cargo. Just any thoughts on whether you're looking at Thank you. I would take the question on the cargo conversion there is no quick conversion into a full freighter that's available. But we have done a few things. Firstly, we are able to sometimes, depending on the type of cargo, carry cargo in the passenger area of the aircraft. So we already have certification approval from our regulators to do this. The 2nd type of measure that you might be referring to is where airlines actually strip out the seats altogether and carry more cargo on board. This is still not a full conversion to a freighter, not equivalent to that. And that is something we are exploring at this juncture, but we have not yet made a decision on actually implementing it. So to inform here on the questions about the various retrofit programs and all that, you can imagine that all these are actually under intense review by us, like our practice until we have something that we can announce. We would not be And as we can imagine, all these involve also discussion with the various suppliers and so forth. Pankaj, there's something concrete out and announced we will not be talking about it in public. Next question is from Luis Choa from Credit Suisse. Your line is now open. I have 2 quick questions if I may. First, in terms of the monthly cash burn based on the 96% cut in passenger capacity, are you able to give us some guidance to that. And secondly, in terms of the previously you mentioned that you are working with all your suppliers and partners to reduce costs can you help us to quantify the level of product reductions you have managed to get from your supplier will then go through the key questions. Okay. If I may, I'll Steven again. On cash burn, essentially what we are left with, when we're with only 4% of capacity in the air is our fixed costs. Now our fixed costs on where guidance be in the region of 30%, thirty five percent of our total costs in a a normal operating environment. So from that, I think you can you can derive the a sort of cash burn that we are looking at. And I think you will see that that's somewhat consistent with the, operating cash flow needs that would be covered by the use of proceeds of the right to see In terms of cost reductions, there has been useful but not fundamental reductions in costs secured from our suppliers. In fairness, the entire aviation sector is under pressure, where we have been frankly more successful, is in adjusting the timing of payments. So scheduling of cash outflows has been shifted. And that has helped particularly in this period for proceeds of the rights history have been received. Thank you. Next question please. Next question is from Alfred Schwab from Flight Global. Your line is now open. Hi, good morning. This is Alfred from Flight Global. I have a follow-up question in terms of, as fleet plans and fleet strategy. Will SIA be retiring any aircraft types earlier than expected? Can we get confirmation that, the 770seven-two hundred seat itself has already been, the SSIA really brought forward the retirement of that a particular aircraft type? And also could you give us a flavor for the engagement with the manufacturers to adjust the delivery stream what is the timeline that you're looking at in terms of potential deferment? Thank you. If I could take the third part of that question. Yes, it is the case that if we are not expecting in the next one to one and a half years to recover the full service as we have pre COVID, we will not need the same site fleet, that we had the aircraft that would therefore be less in less needed will be the older aircraft and those will be the 777 classics, the 777200s in the fleet. So we are expecting that they will leave a little earlier certainly by the end of this financial year. The T330s are on lease. But they too are even by schedule, due to leave the fleet within the next 12 to 14 months. And we will not be extending those aircraft. Those leases. So those two fleets will probably be no longer planned for in any years' time. If I could lead to typing, any other questions? Yes, I'll probably do a question of, color on the discussion with, these discussions are active and in progress, and you will not be fair at all. For me to comment on this at this time. We will disclose when there is information to disclose. Thank you. Next question please. Next question is from the line of Ben Hartaj from Goldman Sachs. Please proceed with your question. Hi, good morning. Thanks very much for joining the call. This is Ben Hartright from Goldman Sachs. If I could just follow-up on a couple of the earlier questions actually. One is on staff costs. And Steven, could you elaborate on the amount that we should think about in terms of the bonus adjusted adjustment back out in Q4 And also what the budget support do you recognize in Q4? What was the amount there and what should we expect going forward? And then just on the hedging losses, I was wondering if you could just give us a little bit more color on what your assumption was? On FY 'twenty one consumption, when you were calculating the 1,000,000 hedging losses in the P and L Thank you. Ben, I'm not going to be very helpful to you. Can't describe to you the, stock components of the reduction in our staff costs. I think that's not be something that I can disclose. In terms of continuing budget court and there is some continuing budgets pulled through July, which has been announced. So there'll be some benefits that we will receive going forward. Now in terms of the recovery of the network, We do assume that there will be some recovery of the network during the financial year. And we have a very tentative profile on which we have reviewed the hedges that are effective and ineffective. We will continue to review that as we go through the year and it is something that we will need to do to continue to establish whether or not there is a cause for further ineffectiveness or not. But that is something that just gonna we will have to see more information becomes available, and for your confidence in the recovery, if any. He manages. Next question is from the line of Mayuko Tani from Nikhay, Singapore. Your line is now open. This is Mayuko from Nikhay. I just would like to know about the 8,800,000,000 how long will this last? I have heard you, Mr. Go saying that this was determined by coverage by looking at the requirements over the financial year. So is this, for this financial year? And what kind of scenario is the system? And also I'd like to hear what you think about the continuity of NOx for the funding? Thank you. Okay. On the issue of the, how long the JPY 8,800,000,000 overland. I believe you have read previous report where we have mentioned that we expect it to last much of the financial year. But I think to also bear in mind that, at the same time, we are continuing with our current cost cutting measures, we will have to look at what perhaps other things you can do, but certainly the cost measures that we have put in place that will continue, you are so aware that we are going out to look at raising liquidity through both secure financing and other forms. As I mentioned earlier in my presentation, that is given the strength of benefit with the right issue. We believe we'll be in a stronger position to get those deals done. At the same time, you're also aware that we are talking to the manufacturers about this is a major part of our capital expenditure about moving some of the capital expenditure out. All these will help to, to help to address some of the liquidity issues. And on top of that, of course, you're aware that we do have ability to draw on the CHF 6,200,000,000 of additional MCVs. On the matter of not good, you like any other carriers in the world, it is auto faced with the COVID challenge. So we would just we were not able to comment much at this point in time, but we just have to say that this is an area we will continue to watch carefully But, again, for not good, it's not good has also his own majority shareholders and all that. Is also not good as an airline to assess the situation and how to react to it. Thank you. Next question probably have time for 1 or 2 more last questions. So next question please Rishi. Next question is from shuriya Vason from Goldman Sachs. Your line is now open. Can you just give us a sense of your cargo yields? So I'm thinking more like in March April, what would the cargo yields looking like perhaps year on year? Thank you. Well, suffice to say that we have seen a healthy improvement in our cargo use in recent months of the CV. Can't give you the calculator in April. That's a lot of published figure at this juncture. But the fact of us operating, which we have publicised that we operated some flights that only carry cargo goes to show that the use are healthy, that the carriage of the cargo alone is enough for us to justify operating those flights. Thank you. Thank you. Last question is from James Pia from Bloomberg. Your line is now open. Hi, good morning everyone. Thanks for giving me the opportunity to ask the question. And one first, I think 2 quick ones. One is on other operating expenses. I noticed that it actually went up for the quarter despite the capacity reduction that we've seen. So maybe if you could shed some color on what are behind those and whether that is likely to persist, you know, is it related to more, you know, disinfection measures or health related measures like that? And second question is on loads. I mean, how are you seeing in terms of the load now with the severe cut of 96% capacity are loads holding on the 50% range? Or can you give some direction, no guidance at least, if not exact numbers at this point? Yes, that will be all. Thank you. May I yes, if I could take the other operating, expenses. I could take the other operating expenses question. I think you're referring to the SGX announcement, which sees a $20,000,000 or $22,000,000 increase. Is that if that's not correct, please tell me that. I think that the primary reason for this increase is actually related to Chris Schott. The increase in revenue, the merchandise sale from merchandise sales obviously has a cost in sourcing the goods. That's pretty much the explanation for the increase in other operating expenses. Question on loads. As Chunbo mentioned, we maintained the minimum connectivity network for good reason to be able to continue to bring Singapore in full. Clearly, with all of the travel restrictions in place, demand is almost nonexistent So you would expect that our loads are far, far, far below, what normal levels would look like. Would continue to publish those numbers on a monthly basis and you can look at those numbers for updates, but very, very low at this time. Thank you, Liqin. And thank you everyone for your questions and for participating in this immediate analyst briefing, and stay safe, be well. Thank you again.